TALLAHASSEE — Insurance Commissioner Kevin McCarty said Tuesday that he is prepared to phase in the massive rate increase for sinkhole insurance to soften the hit imposed by Citizens Property Insurance last week.

The Citizens board voted unanimously to recommend rate increases of more than 2,000 percent in parts of the Tampa Bay area and an average of 429 percent statewide after the Legislature lifted the cap on rates during the 2011 session. But, McCarty said, the board might have failed to take into account provisions in the law designed to reduce the company's losses by targeting insurance fraud.

"We can't base future rates based upon past losses, especially when you have intervening legislation," said McCarty, chief of the Office of Insurance Regulation, which has final approval over the rates at the state-run property insurer.

But McCarty warned a rate increase is inevitable for homeowners who rely on the insurance to pay damages for splitting foundations caused by sinkholes. Legislators cap annual rate increases on Citizens' policies at 10 percent a year, and that suppressed what they could charge. When legislators lifted the rate cap for sinkhole policies as part of major insurance reforms passed during the 2011 lawmaking session, that "had an upward pressure on rates," McCarty said.

McCarty told Gov. Rick Scott and the Cabinet that even if some rate increases are warranted, his office will determine how much savings Citizens will experience from the part of the legislation aimed at cracking down on sinkhole insurance fraud. The goal of the changes is to reduce both the number of claims and the losses experienced by Citizens.

Last year, Citizens collected about $32 million in sinkhole premiums but paid out more than $245 million in claims.

Chief Financial Officer Jeff Atwater was also critical of the Citizens board for recommending policyholders get hit with a giant increase at once.

"You can't go through all the changes that are going to have great benefit and then come out and drop a rate on the people that is nothing but a look back," he said.

McCarty said the Citizens board was following a requirement in the legislation that it impose financially responsible rates but, in the process made the rates so expensive they will be unaffordable for many homeowners.

"There is a balance," he said. "I will be vigilant."

Under the Citizens proposal, the average premium for a sinkhole policy in Tampa would increase from $156 to $3,651. In coastal Pasco County, rates would rise from $1,270 to $3,598. In coastal Hernando County, premiums would soar from $1,356 to $5,734.

The increases are on top of a proposed 8.8 percent average increase in nonsinkhole-related coverage.

Mary Ellen Klas can be reached at meklas@miamiherald.com.

Proposed increases at a glance

Citizens Property Insurance has proposed significant increases in rates for sinkhole insurance coverage. Here is a look at what average rates could be: